Advertiser Disclosure: Many of the savings offers appearing on this site are from advertisers from which this website receives compensation for being listed here. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). These offers do not represent all deposit accounts available.

Ask the Expert: CD Rates and Length of Commitment

Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

July 21, 2010
QA, Ask-the-expert

Q: Aren't CD rates supposed to go up with a longer time commitment? Sometimes I see banks offering a range of CDs whose rates increase as the terms increase, but then dip toward the end. I've also seen CD rates that start to increase with longer terms, then dip in the middle (say at 18 months), then increase again. Why is that?

A: There are a couple of possible explanations:

While it is a general tendency of CD rates to go higher as terms lengthen, it is by no means a certainty. The best way to think of this is that CD rates include an implicit forecast of where bank rates will be in the future. The nature of that forecast can determine the pattern of CD rates along different term lengths. A simple example that defies the general rule is that when bank rates are unusually high, longer-term rates may well be lower than short-term rates because banks are wary about getting locked into the unnaturally high rate for a long period of time.

It's also worth noting that some CDs have special features -- callability, index-links, etc. -- which can affect their apparent yields. As rule of thumb, unless you have a strong understanding of those special features, stick to plain vanilla CDs.

The fact is, you may often come across apparent anomalies in CD rates -- both within a single bank's range of offerings, and especially when comparing across a range of banks. This is why shopping for CD rates is so important -- you may find anomalies that work in your favor.

Got a financial question about saving, investing, or banking? MoneyRates.com invites you to submit your questions to our "Ask the Expert" feature. Just go to our home page and look for the "Ask the Expert" box on the lower left.

Find & Compare Rates Now

Select Rate Type:

Savings Rates

Credit Card Rates

Money Market Rates

Mortgage Rates

CD Rates

Amount of money to invest

$

Card Type

Monthly Spend

Carry a Balance?

Amount of money to invest

$

Loan Amount

$

Loan Term

State

Amount of money to invest

$

Term

1 Comment

Hampaiden valkaisuun20 September 2010 at 1:40 pm

I only accidently discovered this website and this wonderful piece of writing. Thanks mate and continue the great work!

Want to stay up to date with money-saving tips and the very best deals?

Advertiser Disclosure:
Many of the savings offers appearing on this site are from advertisers from which
this website receives compensation for being listed here. This compensation may impact
how and where products appear on this site (including, for example, the order in which
they appear). These offers do not represent all deposit accounts available.

Editorial Disclosure:
This content is not provided or commissioned by the bank advertiser. Opinions expressed here
are author's alone, not those of the bank advertiser, and have not been reviewed, approved or otherwise
endorsed by the bank advertiser. This site may be compensated through the bank advertiser Affiliate
Program. To learn more about our approach to content and product assessments, visit our
Editorial Policy and Product
Assessment Methodology page.

UGC Disclosure:
These responses are not provided or commissioned by the bank advertiser.
Responses have not been reviewed, approved or otherwise endorsed by the bank
advertiser. It is not the bank advertiser's responsibility to ensure all posts
and/or questions are answered.

Information from third party sources deemed reliable but not guaranteed.
Disclaimer: Because rates and offers from advertisers shown on this website change frequently,
please visit referenced sites for current information. This website may be compensated by
companies mentioned through advertising, affiliate programs or otherwise.